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VA Living Benefit Riders Are Making A Comeback

A lot of the changes made to variable annuity products in the last year were negative.  But the most recent changes show that the variable annuity market looks to be on an upswing.  One of the most notable changes is that some life insurance companies are bringing back living benefit riders or offering better ones.  In addition to that, we are still seeing more investment focused variable annuities and some companies are still offering exchanges.  In Darla Mercado’s Investment News article, “Life insurers show their hands with new VA filings,” she summarized the newest variable annuity Securities and Exchange Commission filings.

Some people are surprised that insurance companies are already increasing living benefit offerings when interest rates are still low.  Morningstar Inc. forecasts that this might be happening because people are anticipating higher rates.  The 10-year Treasury has remained steady, increasing in 2013 and slightly decreasing this year.  Forecasts show that it will likely increase again, so that might be why some insurers are already being more generous with variable annuity living benefit riders.  The withdrawal percentages for Transamerica’s Retirement Income Plus VA will be as high as 6%.  It has been quite awhile since a 65 year old received a withdrawal rate that high in their variable annuity contract.  Forethought Financial Group is offering two new living benefit features, the Daily 6 and the Daily +4.  Your lifetime annual payments are based on either a 6% or 4% deferral bonus and a market based step up.  In addition to those, SunAmerica filed to increase their benefits for the Polaris Income Builder annuity.  Single life annuity clients who are 65 or older will now receive a 5.2% annual withdrawal percentage.

Variable annuities focused on the investments, rather than living benefit riders, have been the trend over the past few years.  Some companies are increasing their investment options and continuing their focus on principal protection and tax deferral.  Prudential’s Premier Investment variable annuity was introduced this year with focuses on tax deferred growth and tax free investment portfolio transfers.  Although this VA doesn’t have living benefits, you can add on death benefits.  The fees are assessed a little different with the Premier Investment so that your charges as a percentage of your investment go down as your investments grow.  AXA Equitable’s Investment Edge variable annuity now has an I-share version to go along with their B- and C-share versions.  This new version was created for fee based advisors.

In addition to rebranding themselves as Voya Financial, ING USA Annuity & Life Insurance Co. recently filed an enhanced annuitization offer.  Their filing is different because they are not asking clients to give up their living benefit rider in exchange for an increase in account value.  Variable annuity contracts with a guaranteed minimum income benefit rider will now have their waiting period waived.  There will no longer be a 10-year waiting period for income benefits and if they choose this exchange, they will receive a certain percentage increase in their benefit base.  This isn’t a losing exchange situation for clients because they are still getting their living benefits and don’t have to wait as long.  It’s good for the insurer and the annuity holder.  Principal Financial Group is offering an exchange of their Principal Investment Plus VA contracts to a newer version of the variable annuity.  Their guaranteed minimum withdrawal benefit will be exchanged and their investment options will be more limited depending on which newer version they choose.

Insurance companies are still offering some variable annuity exchanges, but they are a little different than those that were offered in the past year.  Many variable annuities are still investment focused without living benefit riders, but some insurers are bringing back the living benefits.  An increase in living benefit availability and more generous percentages will likely increase variable annuity sales throughout this year.

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